- Author
- Year
- 2013
- Title
- Evolutionary selection of expectations in positive and negative feedback markets
- Journal
- Journal of Evolutionary Economics
- Volume | Issue number
- 23 | 3
- Pages (from-to)
- 663-688
- Document type
- Article
- Faculty
- Faculty of Economics and Business (FEB)
- Institute
- Amsterdam School of Economics Research Institute (ASE-RI)
- Abstract
-
An economic environment is a feedback system, where the dynamics of aggregate variables depend on individual expectations and vice versa. The type of feedback mechanism is crucial for the aggregate outcome. Experiments with human subjects (Heemeijer et al., J Econ Dyn Control 33:1052-1072, 2009 ) have shown that price converges to the fundamental level in a negative feedback environment but fails to do so under positive feedback. We present an explanation of these experimental results by means of a model of evolutionary switching between heuristics. Active heuristics are chosen endogenously, on the basis of their past performance. Under negative feedback an adaptive heuristic dominates explaining fast price convergence, whereas under positive feedback a trend-following heuristic dominates resulting in persistent price deviations and oscillations.
- URL
- go to publisher's site
- Language
- English
- Permalink
- http://hdl.handle.net/11245/1.398197
Disclaimer/Complaints regulations
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.